Starting out in Wholesaling

[Benjamin Ortiz]

Not sure if watching guys on Youtube is smart idea when it comes to wholesaling. They make it sound so easy but every time I watch a video I feel like I'm still feeling like they are not telling the full truth and not really giving you all the building blocks that really matter. So here would be my question. Do I need a buyers list before starting out? They don't mention any help as far as I can tell as far as what the assignment contracts are supposed to say. Are their contracts that are available that others can use? What kind of personnel should we have going to wholesaling if any, such as a contractor to be able to look over the property with you to be able to provide insight on how much repairs would be? These are questions I have had for a bit that I really need help to have answers to start me off on the right foot. I would really appreciate your insight. Thank you in advance!

[Jeff Cichocki]

@Benjamin Ortiz, It's incredibly observant of you to notice that they aren't telling you the full story. They're not. 99% of wholesalers out there don't have the full story. This might be a little long winded, but here's what's going on and what you need to watch for to stay compliant and legal.

Please don't misunderstand what I'm saying below. Wholesaling is good and profitable. But, there is a right way and a wrong way to do things. Stay above board and you'll have nothing to worry about. Always look out for your seller and you'll have nothing to worry about. The information below is to give you a good background and context of how to do it legally.

1. Everything they say about getting the house under contract is true. You can't do anything until you get that. If you don't have a contract, you have nothing to market. If you don't have it under contract, under no circumstances should you market anything about that deal.

2. Once you have it under contract, you have a contract. You do not own the house. You not have the equitable interest that many of the guru's claim you you have. None of the guru's are attorney's. I have several friends who are attorneys and they can site case law that will demonstrate that the guru's are blatantly wrong.

3. When you have a contract, you cannot advertise the house. You can only advertise the contract that you have. You cannot give out the address. You cannot use pictures in your advertising of the contract. It is up to the buyer to read the contract and extract the address from it. It is up to the buyer to look up address to get the pictures and other details. If you advertise the address, pictures and details, you are brokering without a license. It is illegal in all 50 states to broker without a license. Just because the realtors association isn't causing a ruckus and people are getting away with it does not make it legal. If I drive 100 MPH down the highway and don't get caught, it was still illegal for me to do. I broke the law. It's really that simple.

4. Take a look at the laws in Ohio & Illinois. Illinois recently made the national news because they passed a law that makes it blatantly illegal to wholesale a house or contract without a brokers license (I believe you can do 1 a year without it). I've been watching a lot of chatter in the forums about how investors are going to go out and get licensed to fix the problem. It's not that easy. When you are license, you are held to a higher standard. That standard requires you to do what's in the best interest of the seller. As an agent, you work for them. When you put a house under contract at one price and you sell it at higher price making a spread, you are in violation of your license. You knew about a buyer that would pay more (which would clearly be in the sellers best interest) to the the seller. And, no; disclosing that this is what you're doing does not relieve you of your obligations under your license. You cannot pocket the difference just because you disclosed your intent. Plus, you typically have to work under a broker for (I think) two years before you are allowed to get a brokers license. This is not an easy fix nor a good one. 

5. What's happened in Illinois and Ohio is what's coming for the rest of the country. It's just a matter of time. I also happen to know that the Attorney General in a couple of states have their sights on some of the major guru's that live in their state and teach it wrong. As soon as they get their legislation passed, you will see some big guys in some seriously hot water. They will make huge examples of them.

6. In Illinois, there were a bunch of brokers who stepped forward and declared that they would do flat fee listings for investors. The NAR (National Association of Realtors - all realtors are governed by them) caught wind of it immediately. They immediately responded with a new set of rules for realtors to follow to discourage this. The powers that be are dead set on creating a limiting set of rules to control how wholesaling is going to be done in the future. I honestly believe that they want to eliminate it if they can. I don't think they will, but they definitely make it harder for sure.

7. If you want to learn more about what's coming, go to WatsonInvested.com (this is not an affiliate link - I don't get anything for you going there - Bigger pockets will delete posts if you don't disclose). This is Jeff Watson's website. He is the attorney for the National REIA and spends a lot of time in congress fighting on our behalf. On Jeff's site, you will find a menu link to his wholesaling videos. Watch them. The videos he put up are where he interviewed the State of Ohio regulators regarding this topic. It will and should scare you a tad when you watch them. Don't worry. What he's talking about is what I'm saying above. Sell your interest in the contract, not the house. If you do that, you'll be fine. If you're in Illinois, good luck.

8. If you want to talk to an attorney in Wisconsin, I would recommend you get in touch with Amy Martin Farrow. I believe she is in the Milwaukee market. I don't get anything for referring you. She is a friend and a very smart one at that. She would be a good resource for you. She should be fairly easy to find on FB.

If you have any other questions about it, I'd be happy to try to help you get things figured out. Just reply to this post and I'll see what I can do.

Good luck.